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RC4110(E) Rev. 08
visit our Web site at www.ca . etext (CD or diskette).gc. or a worker.Is this guide for you? Use this guide if you are: ■ ■ a payer.gc. 2 www. It will help you understand how to determine a worker’s employment status. you can get our publications in braille.cra. If you have a visual impairment.ca/alternate or call 1-800-959-2221. La version française de ce guide est intitulé Employé ou travailleur indépendant. large print. or MP3.cra. For more information.
gc.gc. and officers) secure.gc. visit our Web site at www. To do this. provide a nil remittance. corporation income. the key question we ask is whether or not the person is engaged to perform services as a person in business on his or her own account. An authorized representative for the payer can request a ruling electronically at www.cra. it is to be interpreted under the Québec law (Civil Code).gc. directors. Did the two parties intend to enter into a contract of service (employer-employee relationship) or did they intend to enter into a contract for services (business relationship)? We need to know how they defined their working relationship and why they defined it as such. view the status of your T4 return.ca/representatives.cra.ca/mybusinessaccount.ca/cppeiexplained.cra. These factors differ if the contract is formed in the province of Quebec or in another province or territory. For more information. a payer can request a ruling electronically by www.cra. even though the contract was formed for example in Ontario (Common Law). and income tax from remuneration or other amounts they pay to their employees.ca/business. For more information. More information on the treatment of self-employed workers in Quebec may be located in the following Revenue Quebec publication entitled IN-301-V Employee or Self-Employed Person? C dealing at arm’s length with the employer. You can get this from our Web site at www.gc. If the worker is an employee. or as an employee. visit our Web site at www. either party can request a ruling to have the status determined. using a two-step approach. If you have a payroll account with CRA. Request for a Ruling as to the Status of a Worker Under the Canada Pension Plan and/or the Employment Insurance Act.cra. Note Non-arm’s length relationship – If an employee is not visiting the CRA Web site at www. visit our Web site at www. It can also have an impact on how a worker is treated under other legislations such as the Canada Pension Plan. If the business is registered for My Business Account.ca/mybusinessaccount. You can also authorize an employee or representative to have online access to your information.Before you start Employee or self-employed workers? It is important to determine whether a worker is an employee or a self-employed individual. They have to remit these deductions along with their share of CPP contributions and EI premiums. If the worker is a self-employed individual (business relationship). My Business Account (MyBA) My Business Account provides business owners (including partners. Depending on where the contract is formed. register a formal dispute (Appeal) and view your payroll remitting requirements. Sometimes the intention is clear.gc. online access to a growing range of payroll. For more information. Step 1 We ask the worker and the payer what their intent was when they entered into the working arrangement. GST/HST. Employment Insurance premiums. and the Income Tax Act. Note In a written contract.ca/payroll. An employer who fails to deduct the required CPP contributions and EI premiums has to pay both the employer’s share and the employee’s share of any contributions and premiums owing. Sometimes the intent can be 3 Requesting a ruling If a worker or payer is not sure of the worker’s employment status. Employment status directly affects a person’s entitlement to Employment Insurance (EI) benefits. he or she is considered to have a business. (employer-employee relationship) the payer is considered an employer. and both parties are in agreement (common intent). Determine a worker’s employment status in a province or territory (other than Quebec) When we examine whether or not a person is an employee or self-employed individual. you can view your payroll account balance and transactions. You can also use Form CPT1. The facts of the relationship as a whole will determine employment status. Determining a worker’s employment status ertain factors have to be considered when determining if a worker is an employee or a self-employed individual. use the set of factors appropriate for your situation.cra. For more information.cra. the parties may state that in the event of a disagreement respecting the contents of the contract.cra. and other account information. the province or territory where the contract was formed will determine which set of factors to use. Note This guide does not replace a formal request for a ruling. it is possible that their employment is not insurable under the Employment Insurance Act. the Employment Insurance Act. Employers are responsible for deducting Canada Pension Plan (CPP) contributions. request a CPP/EI ruling. plus penalties and interest. Usually.gc.ca . read the interpretation article on this subject at www. unless it is stated differently in the written contract. we examine the total relationship between the worker and the payer.ca/forms or by calling 1-800-959-2221.gc.
and insurance. Payer’s right to exercise control It is the right of the payer to exercise control that is relevant. they have to ensure that the status they have chosen is reflected in the actual terms and conditions of the employment. loyalty. The overall work environment between the worker and the payer is one of subordination. The determination of the degree of control can be difficult when examining the employment of professionals such as engineers. and responsibility for. not whether the payer actually exercises this right. in which case there is no common intent. the degree of financial risk taken by the worker. Where the schedule is irregular. or integration. The worker receives training or direction from the payer on how to do the work. they may require little or no specific direction in their daily activities. The payer determines and controls the method and amount of pay. subordination. Degree of control or autonomy Consider the degree of control held by the payer or the degree of autonomy held by the worker. The worker requires permission to work for other payers while working for this payer. we decide if the answers are more consistent with a contract of service or with a contract for services. and IT consultants—because of their expertise and specialized training. ■ ■ Control Control is the ability. diminishing the payer’s control over how the work is performed. Sometimes the two parties have a different understanding as to the status of their working relationship.found in a written agreement. Contractual control of. The payer chooses to listen to the worker’s suggestions but has the final word. Indicators that the worker is an employee ■ The relationship is one of subordination. 4 www. and any other relevant factors. The worker can accept or refuse work from the payer. These questions relate to: ■ ■ The payer controls the worker with respect to both the results of the work and the method used to do the work. repair. In addition. and effectively control many elements of how the work is performed. authority. an asset in a rental or lease situation is also considered under this factor. ■ ■ ■ ■ ■ ■ ■ ■ ■ ■ We look at the answers separately and then together. ■ Indicators that the worker is a self-employed individual A self-employed individual usually works independently within a defined framework. it is necessary to focus on both the payer’s control over the worker’s daily activities. The worker is usually free to work when and for whom he or she chooses and may provide his or her services to different payers at the same time. When there is no common intent. the degree of responsibility for investment and management held by the worker. whether the worker can subcontract the works or hire assistants. doctors. or right of a payer to exercise control over a worker concerning the manner in which the work is done and what work will be done. ■ the level of control the payer has over the worker. The payer determines what jobs the worker will do. we explain each factor and show some indicators that the worker may be an employee or a self-employed individual. and not the control of a payer over the end result of a product or service purchased. The actual degree of control will vary with the type of work and the skills of the worker. The worker does not have anyone overseeing them. The payer will often direct. What is relevant is the significance of the investment in the tools and equipment along with the cost of replacement. ■ ■ Factors you should consider To help you understand the process. Tools and equipment Consider if the worker owns and provides tools and equipment to accomplish the work. and the payer’s influence over the worker. A worker who has made a significant investment is likely to retain a right over the use of these assets. ■ Step 2 We ask the worker and the payer questions that will help us understand the working relationship and allow us to verify whether the intent of the parties is reflected in the facts. security. a significant investment in tools and equipment and the maintenance and replacement costs associated with these assets may place the worker at the risk of a loss. It is the control of a payer over a worker that is relevant. Workers and payers can set up their affairs as they see fit. however. the worker’s opportunity for profit. whether or not the worker provides the tools and equipment. all of which are generally associated with an employer-employee relationship. When examining the factor of control. priority on the worker’s time is an indication of control over the worker. scrutinize.ca .gc. Salary negotiations may still take place in an employer-employee relationship. such as written contracts.cra. The working relationship between the payer and the worker does not present a degree of continuity. We consider whether or not they reflect the stated intention.
The payer retains the right of use over the tools and equipment provided to the worker. employees will not have any financial risk as their expenses will be reimbursed. ■ ■ ■ ■ ■ ■ ■ ■ Indicators that the worker is a self-employed individual The worker provides the tools and equipment required for the work. ■ ■ ■ ■ ■ ■ Subcontracting work or hiring assistants Consider if the worker can subcontract work or hire assistants. Determine if there are any fixed ongoing costs incurred by the worker or any expenses that are not reimbursed. The worker supplies the tools and equipment and the payer reimburses the worker for their use. The worker is financially liable if he or she does not fulfill the obligations of the contract. The payer determines and controls the method and amount of pay. appliances. Generally.ca 5 . The worker performs a substantial amount of work from their own workspace and incurs expenses relating to the operation of that workspace. www. even if they are full-time employees. Indicators that the worker is an employee ■ The worker has no capital investment in the business. the ownership of tools and equipment by a worker is more commonly associated with a business relationship. employees can also be required to provide their own tools. Usually. stethoscopes. The worker pays the hired helpers. For example. However. and vehicles such as trucks and tractors. The worker is not financially liable if he or she does not fulfil the obligations of the contract. and maintenance to the tools and equipment. He or she can hire another party to either complete the work or help complete the work. ■ Indicators that the worker is a self-employed individual The worker does not have to perform the services personally. this does not in itself place that worker in the status of a self-employed individual. The worker has significant investment in the tools and equipment and the worker retains the right over the use of these assets. In addition. insurance. Financial risk Consider the degree of financial risk taken by the worker. ■ ■ Responsibility for investment and management Consider the degree of responsibility for investment and management held by the worker. and performs substantial work from that site. Self-employed individuals often supply the tools and equipment required to complete a contract. The worker is hired for a specific job rather than an ongoing relationship. Indicators that the worker is an employee The worker is not usually responsible for any operating expenses. However. ■ The worker does not have a business presence. You should also consider if the worker is free to make business decisions that affect his or her profit or loss. the payer is responsible for repair. self-employed individuals can have financial risk and incur losses because they usually pay fixed monthly costs whether or not work is currently being performed. The worker advertises his or her services and actively markets himself or herself. is responsible for the costs to maintain it. The worker has to perform the services personally. and insurance costs. As a result. In addition.cra. The payer has no say in whom the worker hires. The courts have acknowledged that because a worker is required to provide tools of the trade. the working relationship between the worker and the payer is continuous. the worker is responsible for the costs of repairs.Note Tools and equipment can vary widely in terms of value and can include everything from wrenches and hammers. The worker supplies his or her own workspace. ■ The worker does not have the ability to hire and send replacements. and they will not have fixed ongoing costs. The worker does not receive any protection or benefits from the payer. Indicators that the worker is an employee ■ The worker cannot hire helpers or assistants. Employees and self-employed individuals may be reimbursed for business or travel expenses. ■ Indicators that the worker is a self-employed individual The worker hires helpers to assist in the work. musical instruments. to costumes. many skilled tradespeople such as auto mechanics are required to supply their own tools. Consider only the expenses that are not reimbursed by the payer.gc. computers. This factor can help determine a worker’s business presence because subcontracting work or hiring assistants can affect their chance of profit and risk of loss. Is the worker required to make any investment in order to provide the services? A significant investment is evidence that a business relationship may exist. Indicators that the worker is an employee The payer supplies most of the tools and equipment required by the worker. and pays the costs for doing so. maintenance.
employees working on a commission or piece-rate basis. a worker has to have potential proceeds and expenses. Sometimes the intention is clear. However. To have a chance of a profit and a risk of a loss. In an employer-employee relationship. we obtain a copy of the contract. health. Sometimes the two parties have a different understanding as to the status of their employment relationship. as it is not the excess of proceeds over expenses. Step 3 We compare each party’s intentions with their actual working relationship. Opportunity for profit Consider whether the worker can realize a profit or incur a loss. The worker manages his or her staff. and group accident. using a three-step approach. not the payer’s.gc. ■ The worker is entitled to benefit plans which are normally only offered to employees. ■ ■ Indicators that the worker is a self-employed individual The worker can hire a substitute and the worker pays the substitute. and dental insurance plans. it generally indicates a business relationship. the worker is normally guaranteed a return for the work done and is usually paid on an hourly. Self-employed individuals can increase their proceeds and/or decrease their expenses in an effort to increase profit. Sometimes the intent can be found in a written agreement.ca . and both parties are in agreement (common intent).■ ■ ■ Indicators that the worker is a self-employed individual The worker has capital investment. It is for the most part an assessment of the degree to which the worker can control his or her proceeds and expenses. Workers and payers can set up their affairs as they see fit. because they have the ability to pursue and accept contracts as they see fit. we examine the relationship between the worker and the payer. however. We need to know how they defined their working relationship and why they defined it as such. or a testimony by the parties and examine the parties’ actions. and to manage those expenses to maximize net earnings. remuneration. They can negotiate the price (or unilaterally set their prices) for their services and have the right to offer those services to more than one payer. Employees may have expenses directly related to their employment. The method of payment may help to determine if the worker has the opportunity to make a profit or incur a loss. or similar basis. daily. weekly. Step 1 We ask the worker and the payer what their intent was when they entered into the working arrangement.cra. This increase in income is not normally viewed as a profit. some self-employed individuals may be paid on an hourly basis. Step 2 We look to see if the employment meets the definition in the Civil Code of Québec of a contract of employment. Employees generally do not share in profits or suffer losses incurred by the business. expenses would not place employees at risk of incurring a loss because it is unlikely that the expenses would be in excess of their remuneration. The worker hires and pays individuals to help perform the work. Indicators that the worker is an employee ■ The worker is not normally in a position to realize a business profit or loss. Normally. When a worker is paid a flat rate for the work performed. Self-employed individuals normally have the chance of profit or risk of loss. Both parties’ intentions form part of the context that we analyse. especially if the worker incurs expenses in performing the services. For example. and one could exceed the other. The worker has established a business presence. board and lodging costs. Self-employed individuals will normally incur expenses to carry out the terms and conditions of their contracts. Employees normally do not have the chance of a profit and risk of a loss even though their remuneration can vary depending on the terms of their employment contracts. they have to ensure that the status they have chosen is reflected in the actual terms and conditions of the employment. The worker is compensated by a flat fee and incurs expenses in performing the services. or of a business contract (contract for services) by considering the following factors: ■ ■ ■ performance of work. This factor has to be considered from the worker’s perspective. We confirm that the conditions of the working relationship meet the status that the parties have chosen and that they are consistent with the definitions of the Civil Code of Québec. and relationship of subordination. 6 ■ Determining a worker’s employment status in the province of Quebec When we examine whether or not a person is an employee or self-employed individual in the province of Quebec. www. To determine the parties’ intentions. such as automobile expenses. It is important to gather the facts and analyse each of them in light of the specific context of the employment and the intent of the parties. in which case there is no common intent. as this indicates that a worker controls the business aspects of services rendered and that a business relationship likely exists. or employees with a productivity bonus clause in their contract can increase their earnings based on their productivity. These include registered pension plans.
the worker will receive remuneration in exchange for work.ca/payroll. ■ The payer controls the worker with respect to the results of the work and the method used to do the work. and IT consultants—because of their expertise and specialized training. fishers. The worker can accept or refuse work from the payer. or integration. loyalty. doctors. EI and income tax for workers engaged in certain occupations apply. The worker receives training or direction from the payer on how to perform the work. It is the control of a payer over a worker that is relevant. who.gc. To help you understand the process. where. taxi drivers and drivers of other passenger-carrying vehicles. When examining the factor of control. when and how). Degree of control or autonomy Consider the degree of control held by the payer or the degree of autonomy held by the worker. The relationship of subordination is the capacity. The payer can impose disciplinary actions on a worker. ■ ■ ■ ■ Performance of work Whether or not there is an employer-employee relationship or a business relationship. It can be part-time or full-time for a specified or indeterminate period. The payer controls the worker’s absences. not whether the payer actually exercises this right. such as sick leave or vacation leave. The worker does not have to perform the services personally. it is necessary to focus on both the payer’s control over the worker’s daily activities. employees outside of Canada.gc. The worker’s activities are reserved to a single payer (exclusivity of services). The parties have inserted a non-competition clause in their written contract. The determination of the degree of control can be difficult when examining the employment of professionals such as engineers. The working relationship between the payer and the worker does not present a degree of continuity.cra. and not the control of a payer over the end result of a product or service that he or she has purchased. we explain each factor and show some indicators to display whether or not a relationship of subordination exists. Indicators that the worker is an employee ■ The payer directs and controls many elements of how the work is performed (such as what. www. all of which are generally associated with an employer-employee relationship. The worker has to perform the work.cra.Factors you should consider Examine the relationship between the worker and the payer by considering the factors outlined in Step 2. He or she can hire another party to either complete the work or help complete the work. and the payer’s influence over the worker. Whether or not there is an employer-employee relationship or a business relationship. ■ ■ ■ ■ ■ Special situations S ■ ■ pecial rules concerning CPP. subordination. by the piece or another manner. The worker accepts integration in the payer’s business to have the latter benefit from his work. placement and employment agency workers. security. ■ ■ Remuneration Remuneration means all considerations and benefits having a monetary value. ■ ■ ■ Relationship of subordination This factor helps distinguish the employer-employee relationship from a business relationship. they may require little or no specific direction in their daily activities. The payer creates the work schedule and establishes the worker’s rules of conduct. The worker does not need to be at the payer’s premises. The worker has to remit activity reports to the payer. The remuneration can be calculated by time. the worker has to perform the work. see Guide T4001.ca 7 . Payer’s right to exercise control It is the right of the payer to exercise control that is relevant. Here are a few examples: barbers and hairdressers. ■ Indicators that the worker is a self-employed individual The worker is usually free to work when and for whom he chooses and may provide his or her services to different payers at the same time. ■ ■ ■ For more information on special situations. Employers’ Guide –Payroll Deductions or Remittances or visit our Web site at www. The actual degree of control will vary with the type of work and the skills of the worker. The worker can generally choose the time and the manner the work will be performed. the authority or the right of a payer to exercise a control over the worker’s activities and the manner in which the work is done.
890 (A-857-90) Wiebe Door Services Ltd.ca/cppeiexplained. v.gc. “Contract of Employment: Why Wiebe Door Services Ltd.N.12th Avenue Shawinigan-Sud Qc G9N 7S6 St.gc. you can call our bilingual enquiry service at 1-800-665-0354. visit www. Canada 2002 FCA 96 (A-563-00) Standing v. Legal material ARCHAMBAULT.N. no. 553 (A-531-85) 9041-6868 Québec Inc. John’s NL A1B 3Z1 Sudbury Tax Centre 1050 Notre-Dame Avenue Sudbury ON P3A 5C1 Summerside Tax Centre 275 Pope Road Summerside PE C1N 6A2 Surrey Tax Centre 9755 King George Highway Surrey BC V3T 5E1 Winnipeg Tax Centre 66 Stapon Road Winnipeg MB R3C 3M2 ■ ■ ■ ■ Legislative references ■ ■ ■ Paragraph 5(1)(a) of the Employment Insurance Act Paragraph 6(1)(a) of the Canada Pension Plan Articles 2085 to 2129 of the Civil Code of Québec . Pierre. 671122 Ontario Ltd.J.ca or call 1-800-959-5525.cra.For more information I f you need more help after you read this guide. You can get forms and publications from www. v.  F. no.C.J. APFF.F.C.C.C. John’s Tax Centre 290 Empire Avenue St.ca/forms or by calling 1-800-959-2221.)  3 F. Canada (M.).N. we would like to hear from you. v. Please send your comments to: Taxpayer Services Directorate Canada Revenue Agency 750 Heron Road Ottawa ON K1A 0L5 Interpretive articles To view articles that will help you understand the requirements of the Canada Pension Plan and the Employment Insurance Act. Does Not Apply in Quebec and What Should Replace It.cra.R. Canada (M.R. Montreal. 2005. visit our Web site at www. 1720 (A-559-04) ■ Addresses Shawinigan-Sud Centre 4695 .gc. no. Canada (M. Teletypewriter users If you use a teletypewriter (TTY).R)  A.cra.” The Harmonisation of Federal Legislation with Quebec Civil Law and Canadian Bijuralism: Second Collection of Studies in Tax Law. Your opinion counts If you have any comments or suggestions that could help us improve our publications. 2001 SCC 59 (27820) Royal Winnipeg Ballet v. Canada (M. 339 (A-443-04) Wolf v. Court decisions ■ Sagaz Industries Canada Inc.N.)  F.R.